Business insurance is an important investment, and just like you’d take the time to insure your own home or car, you’ll want to make sure your business is covered from any unexpected events or disasters that can occur during business operations. Costs for business insurance can range a great deal, depending on a number of factors which we’ll walk you through in this article.
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How much does small business insurance cost?
Small business insurance costs can vary widely due to a broad range of factors, including the type of business insurance being purchased, your business’s unique characteristics and risk profile, and level of coverage. Below, we’ve compiled a list of common coverages and their corresponding average annual premium ranges for small businesses.
Average Cost by Type of Business Insurance Policy
| Insurance Type | Average Annual Cost |
|---|---|
| Business Interruption Insurance | $500 - $1,500 |
| Business Owner's Policy | $350 - $2,500 |
| Commercial Auto Insurance | $750 - $2,500 |
| Commercial Property Insurance | $500 - $3,500 |
| Cyber Liability Insurance | $650 - $2,500 |
| Employment Practices Liability Insurance | $1,500 - $2,250 |
| General Liability Insurance | $365 - $1,700 |
| Professional Liability Insurance | $300 - $2,500 |
| Workers' Compensation Insurance | $375 - $1,400 per employee |
General liability insurance is one of the most commonly purchased types of business insurance, protecting your business against third-party lawsuits related to property damage and bodily injury. In our analysis of general liability insurance premiums, we found that average premiums ranged from $365 to $1,739 across a variety of industries for companies with moderate liability risk. The overall average cost of general liability policy in the U.S. is $597 per year for small businesses.
Cyber liability insurance covers your business against liability, cyber-related security risks, and property losses caused by cyberattacks such as hacks, data breaches, denial of service attacks, and viruses. In our cyber insurance cost analysis of quote estimates and rate filings from over 43 insurance companies nationwide, we found premiums ranging from $650 to $2,357 for cyber insurance, based upon companies with moderate business risks. The average cost for cyber insurance in 2021 was $1,589 per year, which was slightly higher than in 2020 when average costs were $1,485 per year. In 2022, a jump of 25-80% for premiums clearly demonstrates the significant and growing risk factors of insuring against cyber and ransomware attacks.
Workers’ compensation insurance provides financial and medical benefits to employees who suffer a work-related injury or illness while working for your business. In our analysis of workers’ compensation insurance premiums, we found that the average cost of workers’ compensation policy is $936 per employee, per year. Overall, workers’ compensation premiums accounted for 1.2% of the total cost of employing the average American worker.
What factors affect business insurance costs?
Small business insurance pricing is dependent upon a variety of factors, and these factors also differ depending on what type of policy you’re looking to purchase. Below, we’ve highlighted some of the more important qualities that insurers look at when determining the cost of business insurance.
- Industry and type of business. Your business’s risk profile changes dramatically depending on the nature of your business. Businesses that are involved in high-risk activities like construction or manufacturing will likely need to pay more for coverage.
- Number of employees. The larger your business, the more employees you’ll need to cover and the higher the likelihood that an accident could happen or an employee sues your company.
- Type of property and assets owned. The more property and business assets own, the more you’ll need to cover. Additionally, if the property is higher risk (e.g., a restaurant with a kitchen with open flames), coverage will likely cost more.
- Location. Depending on where your business is located, rates will vary. For example, your business property may be located in an area of high crime, meaning your property insurance will cost more.
- Revenue. The more revenue your business makes, the higher your premiums will likely be. More revenue means more business activity and more interactions with business customers, partners, and employees, meaning a higher chance of something going wrong.
- History of prior claims. Businesses that have had a history of frequent claims will likely see higher premiums. Businesses with no prior claims history are seen as low risk and will see better pricing.
For more specific types of insurance coverages, insurers look at the factors that raise risk for that coverage. For example, commercial auto insurance providers would look at the size of your fleet, types of vehicles, how vehicles are used, and other factors to determine your risk level and pricing.
What types of business insurance do I need?
Business insurance can cover your small business from a number of perils, from property damage to employee lawsuits to data breaches. Depending on your particular business and the unique risks you face, you may opt to purchase a variety of coverages. Below, we’ve highlighted the most essential and common types of insurance for small businesses, regardless of industry or business type.
| Type of Insurance | What It Covers |
|---|---|
| Business Income (or Business Interruption) | Loss of income if your business is unable to operate due to damage or destruction of property by a covered peril. |
| Business Owner's Policy (BOP) | Combines liability, property, and business income insurance coverages that most small businesses would need. |
| Commercial Auto | Vehicles owned or leased by your business and used primarily for business purposes. |
| Commercial Property | Buildings, contents, and the property of others in your care. |
| General Liability | Property damage, bodily injury, products & completed operations, and personal & advertising injury. |
| Professional Liability (or Errors & Omissions) | Liability created in the performance of professional duties for professionals such as lawyers, architects, brokers, etc. |
| Workers’ Compensation | Wages and medical expenses for your employees who are injured while on the job. |
How do I choose an insurance provider?
There are three major factors to consider when choosing an insurance company to insure your business.
The financial strength of the company. Since insurance claims are paid out of the money that an insurance company has available, you want to choose a company that has enough money to pay for potential claims. If an insurance company does not have enough money to pay claims in the event of a disaster, it may fail, and money may not be available to pay for your losses when a failure occurs. An insurance contract is a promise to pay, and you want to ensure that the insurer can fulfill its promise.
Major insurance carrier rating agencies, including AM Best, Fitch, Moody’s, and Standard & Poor’s provide letter grades evaluating the financial strength of insurance companies. Generally, it is safest to choose from insurance companies with ‘A’ ratings.
Pricing. Different companies have different models for pricing risks. You may find differences in premium rates for similar coverages from different insurance carriers. No insurer will have the cheapest insurance rates all of the time, so it is worthwhile to shop around or work with an insurance broker to compare liability insurance quotes.
Reputation for customer service. If you have to file a claim, make changes to your policy or billing address, or otherwise interact with the insurer, you will want an insurer with good customer service. Some insurance companies spend more than others on investments in technology and customer service. This can make a difference in your customer reviews and their experience, especially when filing claims.
Where can I purchase business insurance?
You have several options when choosing where to purchase insurance: brokers, agents, and direct writers.
Direct writers are insurance companies that will sell you insurance directly, without the use of agents or brokers.
Insurance agents are independent companies that represent insurers in the sale of insurance. Captive agents represent only a single insurance company. Independent agents can represent more than one insurer, and can help you shop around with different companies.
Insurance brokers are independent companies that represent your company rather than representing the insurer. Brokers can also help you compare prices and policies from competing insurers.
Brokers and agents are paid by the insurance company through commissions for the insurance policies they sell. The commissions are a percentage of the premiums that you pay, and the brokers and agents are paid for every year that you renew your policy.
Usually, the price of the same insurance policy from the same insurance company will be the same whether you buy it through a broker, agent, or direct writer. However, in some cases, brokers will charge your company a fee, which they should disclose to you in advance.
Compare Insurance Brokers
If you’re looking to work through an insurance broker, there are a number of online quote options that offer a convenient way to shop different insurance providers and compare business insurance quotes. Below, we’ve highlighted a few of our trusted partners who can provide your business with a vast array of coverage options.
| Provider | General Liability | Professional Liability | Business Owner's Policy |
|---|---|---|---|
| Embroker | ?? | ?? | ?? |
| CoverageSmith | ?? | ?? | ?? |
| CoverWallet | ?? | ?? | ?? |
| Hiscox | ?? | ?? | ?? |
| Thimble | ?? | ?? | ?? |
Final Word
Protecting your small business from a wide range of disasters, accidents, and lawsuits is an important consideration that no business owner should overlook. While balancing affordability and budgets can be difficult as a small business owner, it’s important to remember that comprehensive coverage is an investment in your business’s future. Making sure you have the appropriate coverage could mean the difference between success and failure if anything were to ever happen. Take the time to research business insurance costs and compare quotes, and ultimately, make sure you’ve got the right coverage.
